California's Unemployment Fraud Balloons to $20 Billion

California has given away at least $20 billion in the form of fraudulent unemployment benefits, state officials said Monday, confirming a number smaller than originally feared but one that still accounts for more than 11% of all benefits paid since the start of the pandemic.

State officials blamed nearly all of that fraud on a hastily approved expansion of unemployment benefits by Congress that let people who were self-employed get weekly checks from the government with few safeguards to stop those who were not eligible.

“I don’t think people have captured in their mind the enormity of the amount of money [that] has been issued errantly to undeserving people,” said Assemblymember Tom Lackey, a Republican from Palmdale, who brought along an illustration of 29 dump trucks filled to the brim with $100 bills representing just over half of the money lost to fraud.

The pandemic ushered in widespread fraud at unemployment agencies across the country, with at least $87 billion in fraudulent payments approved by states, according to a June report from the inspector general’s office at the U.S. Department of Labor. In Arizona alone, state officials said scammers pocketed nearly 30% of all its unemployment benefit payments.

In California, the fraud was so widespread that state officials OK’d at least $810 million in benefits in the names of people who were in prison, including dozens on death row; incarcerated people are ineligible for benefits. State officials even sent $21,000 in benefits to an address in Roseville under the name and Social Security number of U.S. Sen. Dianne Feinstein — some of the $2 million in total fraudulent payments that were sent to that same address.

But Gov. Gavin Newsom’s administration on Monday sought to assure state lawmakers that the fraud pipeline in California has been closed. Employment Development Department Director Rita Saenz said the state has implemented new identity verification software that, along with other preventive measures, has stopped an estimated $120 billion in fraud attempts.

Saenz told lawmakers on Monday during an oversight hearing that “2020 was an anomaly, a criminal assault on the unemployment insurance program across the country.”

“We closed the door to that type of fraud last year,” she said.

In January, state officials estimated the fraud could be as high as $31 billion. But Monday, state officials revised that down to $20 billion. The Newsom administration has hired former U.S. Attorney McGregor Scott to help prosecute scammers, with the department saying Monday investigations are ongoing.

But the department is still plagued with other problems. When people apply for unemployment benefits, sometimes the information they file with the state is different from what their former employer has filed. When this happens, state officials have to interview these people to resolve those issues.

But people are having to wait up to six months for these interviews. Saenz called this delay “unacceptable.” But she said the state has a new policy that pays people their benefits while they wait, as long as they pass the state’s fraud filters. Saenz said about half of the people waiting for interviews are being paid.

“Things are not improving fast enough for some. There are still some challenges ahead,” she said.

California has paid out more than $178 billion in unemployment benefits since the start of the pandemic based on 25.5 million total claims. Saenz said that’s four times as much as the combined worst two years of the Great Recession a decade ago.

The sheer volume of claims overwhelmed the department, creating a massive backlog and making it nearly impossible to get an answer when people called the agency’s call centers. In January, a state audit blasted the department for doing little to stop the fraud for the first four months of the pandemic, blaming the Newsom administration for “significant missteps and inaction.”

Monday, the auditor’s office said the department had completed 13 of its 21 recommendations so far.

“EDD has made notable progress in addressing areas of concern we found during our audits. But significant steps still need to be taken to address areas of risk,” said Bob Harris, who managed the department’s audit.

Saenz told lawmakers the department had not missed any of the auditor’s deadlines to make changes. She said the department plans to finish hiring people for its newly formed fraud investigation unit by the end of November.

But other changes will take longer. The department is working on a new system that will deposit unemployment benefits directly into people’s bank accounts instead of sending them a check or debit card in the mail, which is more susceptible to fraud. But Saenz said this will take a few years to implement.

That delay upset some lawmakers, who said they were worried people were losing faith in their government.

“When one of our government agencies fails this badly, I believe that it breaks the public trust,” said Assemblymember Cottie Petrie-Norris, a Democrat from Laguna Beach.